The incoming Trump administration will likely be a boon to crypto businesses, enthusiasts and markets, aligning US economic policy with crypto-economic nationalist ideals, fossil fuel interests and a nativist agenda. In this long read, Antulio Rosales and Ty Tarnowski analyse what this means for the American crypto industry, the regulatory landscape and the fight against climate change.

Cryptocurrency enthusiasts are among the most likely winners of Donald J Trump’s second term in office. Part of the diagnosis of the electoral defeat of the Democratic Party, among other issues, seems to land on a gender divide, where the Trump coalition has garnered the support of most voting men of all generations and of most racial and ethnic backgrounds.

Analysts and commentators have pointed to the success of Trump’s irruption into the “bro-sphere” by appearing on podcasts and other non-traditional media with a predominantly male audience. In addition to waging an increasingly vicious “culture war” against transgender people and other sexual minorities, the endorsement of certain hegemonic masculine spaces and discourses is notable, including that of the cryptocurrency enthusiasts, or “crypto-bros”.

This is not to say that there was a clear binary between a crypto-averse Democratic Party and a bullish GOP, as the Republican Party is known. For example, Coinbase launched a “Stand With Crypto” monitor, giving ratings to candidates for House and Senate seats up for election. Their endorsements are not unanimously Republican candidates. In broad strokes, both parties, particularly in the final stretch of the campaign, made attempts to carve a home within their platforms for the cryptocurrency industry.

The imaginary relating bitcoin to key commodities runs through its design, hence the mining metaphor as shorthand for the proof-of-work protocol.

However, the GOP emerged as the favoured party for those who have a stake in a thriving cryptocurrency ecosystem, starting with Trump’s VP pick. Senator JD Vance has long been a crypto enthusiast, a bitcoin holder and a figure connected with the conservative-libertarian line of Silicon Valley, having received immense funding from venture capitalist Peter Thiel across his nascent political career.

This trend was visible in an Ohio Senate race where the crypto industry poured $40 million (of a total of $245 million reportedly spent by the industry in this election cycle) into unseating the incumbent Democrat Sherrod Brown, who had vocally endorsed Elizabeth Warren’s investigations into cryptocurrency exchanges and consistently voted to regulate the industry, especially after the infamous fraud case against FTX and Sam Bankman-Fried. This Ohio campaign was successful and Republican Bernie Moreno, the owner of a blockchain technology company, will succeed Brown.

But what will these connections and support mean for the world of crypto under a second Trump presidency? The Trump administration will likely empower crypto businesses, enthusiasts and markets through a massive re-alignment of the US economic policy to serve crypto-economic nationalist ideals, fossil fuel interests and a nativist agenda.

Building a bitcoin strategic reserve

Reportedly libertarian and anti-state, bitcoin supporters and crypto enthusiasts have long sought direct influence in state apparatuses. Crypto leaders are notorious for taking advantage of regulatory loopholes and obtaining the favours of government regulation. In Puerto Rico, cryptocurrency investors actively sought a regulatory carve-out that takes advantage of the archipelago’s colonial condition to the US.

A strategic reserve of bitcoin through a federal government mandate would produce ripple effects in the monetary system…

These policies seek to attract venture capitalists with the promise of a zero capital gains tax on crypto assets, and a tropical-paradise-like destination. Leading crypto enthusiasts have managed to enforce policy change. Such is the case of El Salvador’s law that turned bitcoin into legal tender, a move largely influenced by Jack Mallers, founder and CEO of cryptocurrency exchange Strike.

In the US, a set of policies that could transform the country’s monetary backbone is being proposed from this community. The goal is to turn massive gold and other reserves into bitcoin, to make the “hodl” crypto trend (hold on for dear life) into government policy. This proposal is not completely new. In Argentina, for example, the use of gas flares in the country’s large Vaca Muerta shale oil and gas camp for bitcoin mining has been floated as a state-sponsored plan to destine the bitcoin proceeds as central bank reserves.

In the US, Cynthia Lummis, Republican senator from Wyoming, proposed that the Federal Reserve use their massive gold reserve to issue certificates to stockpile bitcoin, eventually reaching a supposedly strategic reserve of one million in five years (nearly one hundred billion USD by the end of November’s BTC value).

In an interview, Jack Mallers likened the idea of the bitcoin strategic reserve to monumental changes in US and global monetary history, as in 1971’s decoupling from the US gold standard. This ostensibly visionary idea, according to Mallers, “acts in the best interest of the public. It’s pro jobs, pro energy, pro industry, pro growth”.

A strategic reserve of bitcoin through a federal government mandate would produce ripple effects in the monetary system and could further bolster the valuation of bitcoin, creating a feedback loop of the asset’s allure. The idea seeks to elevate bitcoin to a military-strategic resource, much like oil currently is. This should not be surprising, as bitcoin promoters see the asset as “digital gold”. The imaginary relating bitcoin to key commodities runs through its design, hence the mining metaphor as shorthand for the proof-of-work protocol.

Enhancing and escaping regulation

The Trump administration’s new economic policy converges around the unlikely pillars of tariffs, de-regulation, tax cuts and a redesign of the government bureaucracy to increase efficiency, make up for lost revenue and potentially do away with what the far right calls the “deep state”.

Recent announcements by the president-elect signal a strong pro-crypto, light-on-regulations approach in his upcoming administration. Trump nominated Howard Lutnick to head the Department of Commerce and Paul Atkins as Chair of the Securities and Exchange Commission (SEC), and created a pulpit for David Sacks to advocate for the industry from the loosely defined position of “AI and crypto czar”. These are all crypto evangelists who have advocated for lax regulatory frameworks and treating bitcoin like “any other commodity” that should be freely traded, and not go through more stringent regulatory oversight than securities such as bonds and stocks are subject to.x

Lutnick is the co-chief of the Trump transition team. CEO of Wall Street firm Cantor Fitzgerald, he is a staunch cryptocurrency enthusiast and owner of a “shitload of bitcoin”, while his firm is a major guarantor of Tether. In the wake of his nomination as Commerce Secretary, it has come to light that his firm acquired a five per cent stake in Tether, valued at around $600 million USD, and explored a bitcoin lending project backed by the platform. This is in spite of Tether’s federal investigation for allegedly violating sanctions and anti-money laundering rules. Lutnick is said to be closely linked to the proposed Department of Government Efficiency, dubbed DOGE, not coincidentally like the namesake meme-turned-cryptocurrency.

The costs [of bitcoin mining] are often felt in communities whose energy infrastructure is consumed by noisy warehouses that not only extract energy but also enormous amounts of water…

Trump is himself a “chief crypto advocate” on a self-proclaimed decentralised finance project called World Liberty Financial. The project sells a token that is not transferable on any exchange but instead offers a stake in the project’s governance. Although Trump and his sons are not listed as founders, they are poised to receive 75 per cent of the net revenue from token sales over the next five years as remuneration for their advocacy.

The project has not come close to reaching its token sale target, but has still attracted substantial investment, including a $30 million purchase from Justin Sun, who has previously been sued by the Securities and Exchange Commission (SEC). This signals an apparent conflict of interest: a party who is under scrutiny by the SEC is able to almost directly fund the Trump family outside of the machinery of political donations. The implications of having an industry-friendly group of policymakers and regulators at the highest levels of the US government are significant for a sector that is prone to fraud, scams, sanctions and tax evasion.

Energy parasitism

An important component of Trump’s agenda is his steadfast support of traditional fossil fuel energy. His nominee for Secretary of Energy, Chris Wright, is an insider and advocate of the hydrocarbons industry as well as a climate change denier. In a speech delivered to the Bitcoin Conference 2024 in Nashville, Trump said he wanted crypto “to be mined, minted and made in the USA”. Already in 2021, the United States was responsible for over 37 per cent of the global hash rate of bitcoin mining. The US became a focal point of attraction for mining investments after China began to crackdown on mining, and many went to alternative locations, with flexible regulations and abundant and inexpensive energy.

Prior research has shown that the proof-of-work protocol is a controlled mechanism of energy waste. Similarly, bitcoin installations necessitate increasing energy provision. They may be branded as high-end “data centres” to promote technological progress and industrial upgrades, when in reality they offer little in terms of jobs. The costs are often felt in communities whose energy infrastructure is consumed by noisy warehouses that not only extract energy but also enormous amounts of water, at times discharging heated water back into waterways.

While energy provision is regulated at the state-level in the US, an open-door federal regulatory framework is likely to promote the expansion of contract provisions to large cryptocurrency producers in various states, regardless of the energy source that dominates their generation matrix. States like Texas, Georgia and Kentucky are already the top mining jurisdictions in the country. Ultimately, increasing the mining capacity can become a point of interest for the federal government if the bitcoin strategic reserve becomes a reality, adding demand to an industry that in 2022 was estimated to account for up to 2.3 per cent of US electricity consumption.

The idea of the strategic reserve would start with the federal government keeping custody of the bitcoins seized by the justice system in criminal cases. Advocates also believe the government should step into the mining business itself and store bitcoin rewards directly. Reaching the targets of the proposed reserve through mining will become increasingly energy intensive. The reward for mining a block of bitcoin is cut by half every four years as part of bitcoin’s deflationary mechanics.

A proposal of this sort could benefit energy producers with deregulated generation and distribution frameworks like operators in Texas’ market. Bitcoin mining has been criticised for its energy inefficiency and high consumption, as well as its other detrimental effects on the environment, in terms of massive e-waste generation, water consumption and noise pollution. A massive shift in US government policy seeking to amass 200,000 BTC per year for a period of five years could drastically increase domestic mining and constitute the gravest delay to date in the movement towards an energy transition away from fossil fuels.

Conclusions

Donald Trump’s second term in office is likely to generate even more seismic shifts in policy and political culture than his previous mandate. The world of cryptocurrency and bitcoin maximalists, we believe, will be central beneficiaries of his “America first” policy. In fact, they are already reaping the rewards, with bitcoin eclipsing $100,000 for the first time in its history just weeks after his election.

A Trump 2.0 administration could engender a form of economic nationalism characterised by trade protectionism (tariffs), massive de-regulation of the digital finance and AI sectors and an unwavering support for the traditional fossil fuel energy producers that power them.

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• This blog post represents the views of the author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
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